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When Airbnb IPOéd on December 2020, the investor sentiment was mixed. There were many reasons.
Covid had hit travel sector big time.
Airbnb’s EBIT margins were highly negative. In that same year, Airbnb’s losses were $575 million in Q2.
Pre-IPO, Airbnb's culture was characterized by innovation and a disruptive approach to the hospitality industry.
The company fostered a startup mentality, encouraging experimentation and rapid growth. This culture was integral to its early success, allowing it to scale quickly and attract a large number of hosts and guests.
But the culture that got Airbnb to scale, was not what would get Airbnb to profitability.
Something had to change.
And it was end of 2020 (in parallel to IPO) that Airbnb took many steps - some culturally and operationally strategic and some tactical. One of the more strategic step was how Brian Chesky changed his approach to leadership.
He moved from Management Mode to Founder Mode.
This is how Airbnb’s profitability looked like thereafter:
Welcome to the latest edition of Productify where we deep dive into what is Founder Mode, and how was it practiced at Airbnb - and how it eventually led to Airbnb’s turnaround.
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But, what exactly is Founder Mode?
As a term, it was popularized by Paul Graham, co-founder of Y Combinator, in a recent essay. called ‘The Founder Mode’ who attributed this term of a style of working that often suits Founders more than the Managers.
In his own words he says in the essay:
In effect there are two different ways to run a company: founder mode and manager mode. Till now most people even in Silicon Valley have implicitly assumed that scaling a startup meant switching to manager mode. But we can infer the existence of another mode (Founder Mode) from the dismay of founders who've tried it, and the success of their attempts to escape from it.
In case of Founder Mode,
the founders of the company remain deeply involved in the daily operations of their companies, contrasting sharply with the traditional "Manager Mode," which emphasizes delegation and a more hands-off approach.
One example of Founder Mode in practice is that those practicing it would rather prefer to have meetings with anyone they feel is important to know insights and get work done (i.e do skip level meetings), rather than always stick to their direct reports and delegate to them + follow up with them ie the traditional management approach.
Paul Graham crafted this term as title of his essay and he was largely inspired from discussions at a Y Combinator event where Brian Chesky, CEO of Airbnb, spoke about the challenges he faced when trying to adopt traditional managerial practices.
So, what are the characteristics of Founder Mode Approach?
Many well-known founders have practiced the fundamentals of what we call today as Founder Mode. This includes most prominently Steve Jobs (who Brian Chesky was inspired from), Elon Musck, Mark Zuckerberg and Jeff Bezos.
Across all of these practitioners, there were some common threads on how they operated:
Fast Decision-Making: This mode prioritizes quick decisions and adaptability, avoiding bureaucratic delays common in larger organizations.
Direct Communication: Founders often conduct "skip-level" meetings, engaging directly with employees at all levels rather than just their direct reports.
Preservation of Vision and Culture: Founders work actively to maintain the startup's original goals and values.
Challenging Conventional Wisdom: The approach encourages founders to trust their instincts rather than strictly adhering to traditional management advice
Post 2020, what changes did Brian Chesky bring to Airbnb?
This was the situation at Airbnb that Brian Chesky was dealing with before 2020:
2019 Revenue: Approximately $3.6 billion.
Net Loss (2020): $637 million due to the impact of the COVID-19 pandemic, alongside a 67% drop in quarterly revenue.
Workforce Reduction: Laid off 25% of its workforce during the pandemic.
Until mid 2020 or so, Chesky attempted to adopt a more traditional managerial style by delegating responsibilities. However, he found that this led to greater problems down the line.
Recognizing this, he shifted back to being more hands-on, stating that
“the less hands-on I was, the more I got sucked into problems.
Chesky drew a lot of inspiration from Steve Jobs, particularly after collaborating with former Apple executives.
He learned the importance of being involved in every detail of the company’s operations, stating that a founder must understand their business deeply to lead effectively.
Chesky's return to Founder Mode (as he would have been during very early days of Airbnb) was particularly evident during the pandemic when he had to make rapid decisions to stabilize the company. This included cost-cutting measures and strategic pivots that were vital for survival during a crisis.
Chesky started reaching out to whoever he needed to, to get out of the crisis.
He initiated direct communication within Airbnb, engaging in "skip-level" meetings where he interacts with employees at all levels rather than just his direct reports. This practice ensured that he stays informed about all aspects of the business.
Chesky also aimed to preserve Airbnb's original vision and culture. He emphasizes that leaders should not only manage but also inspire their teams by being actively involved in the company's mission and operations.
Chesky also implemented this with the market. He solicited ideas for improving Airbnb directly from customers and implemented changes based on his personal experiences as both a guest and host on the platform.
This feedback loop was integral to his leadership style.
These changes in his leadership style, and going back to his roots being founder-minded led to many improvements:
Operational Efficiency: The shift towards a more hands-on management style allowed Chesky to identify inefficiencies and implement changes that enhanced operational performance.
Market Recovery: As travel demand rebounded post-pandemic, Airbnb capitalized on pent-up demand for travel experiences, leading to increased bookings and revenue.
Strategic Investments: The company invested in technology and marketing strategies that improved user experience and attracted both hosts and guests back to the platform.
Financial Discipline: A renewed focus on financial discipline helped Airbnb manage costs effectively while maximizing revenue opportunities, resulting in positive cash flow by 2024.
Few years later, Airbnb saw the impact of Brian Chesky’s direct involvement in company matters:
2023 Revenue: $2.2 billion in Q4 alone, with a total revenue growth of 17% year-over-year. This marks a significant recovery and growth trajectory post-pandemic.
Adjusted Net Income: $489 million in Q4 2023, up from $319 million in Q4 2022, indicating improved profitability as Chesky's hands-on leadership style took effect.
Free Cash Flow: Airbnb generated $3.8 billion in free cash flow for the full year of 2023, showcasing strong financial health and operational efficiency.
But, there is a catch to Founder Mode..
We cannot confuse correlation to causation.
Founder Mode was one of many factors that helped Airbnb rebound and get back to profitability.
It was not the only one.
So unless, there is a scientific study of whether Founder Mode succeeds more than Manager Approach over a statistically significant population of companies, it is hard to say Founder Mode was the major or the most relevant factor behind Airbnb’s success.
But it is a detail worth studying.
There is another catch.
Like every leadership approach, the context matters.
Just like you cannot apply management approach of following the organizational structure, working with your direct reports to every company and managerial situation, you also cannot ask every Founder to be in Founder Mode always.
Founder Mode in the beginning i.e when you start a new company , is a must-have.
But when that same company scales, it can become tricky to continue to apply Founder Mode. And I have three ways to explain this:
Founders who remain overly involved may hinder their teams' ability to operate independently, leading to inefficiencies and burnout for both the founder and employees.
As companies grow, the hands-on approach may become unsustainable. Founders must learn to delegate responsibilities effectively to avoid bottlenecks in decision-making processes.
A founder's intense involvement can shape company culture positively or negatively. While it can foster innovation, it may also create a toxic environment if not managed properly.
I strongly feel there has to be three characteristics if a Founder wants to continue practicing Founder Mode at a scaled company:
The Founder needs to be reading the market better than anyone else in the company, and take his bets.
When proven wrong, or sensed to be going wrong - The Founder has willingness to pivot quick enough. Get over himself sometimes.
Founder Mode works well in “correcting course” i.e is execution still aligned with vision or are company economics working well enough to be sustainable enough to reach the vision. To innovate, the Founder should still depend on portfolio of ideas sourced from different sources i.e people or otherwise.
#1 is a huge task. Don’t mistake it.
The reason many visionary leaders in Apple could direct the pack on which direction to develop and build - it was helpful because they were understand the market (customers, needs and more) better than anyone else.
#2 is about learning and figuring.
As a founder, you’re a human. You will be sometimes wrong.
But then rather than sticking to some God-like complex about yourself, you should identify the root cause and find where should we pivot.
#3 is often observed when companies are in critical situations.
Often founders have the best ability to take the calls to keep the company floating and sometimes that means taking not so seemingly nice decisions to others.
Airbnb wasn’t always successful with all the bets during Brian Chesky’s Founder Mode state from 2020 to 2024
In response to the evolving travel patterns influenced by the COVID-19 pandemic, Airbnb introduced a feature (in 2021) that allowed for longer-term stays, specifically targeting remote workers seeking temporary housing solutions.
This initiative was well-intentioned, aiming to adapt to the new needs of travelers who were looking for more flexible accommodation options during a time when traditional travel was severely restricted.
However, the rollout faced significant challenges, particularly concerning pricing strategies and competition with established traditional rental markets.
Many hosts struggled to determine appropriate pricing for long-term stays, leading to inconsistent experiences for guests and confusion regarding expectations.
As a result, the feature did not gain traction as quickly as anticipated; potential guests often preferred conventional rental options or hotels for extended stays.
This mismatch between Airbnb's offerings and market demand highlighted the difficulties in pivoting quickly during a crisis, ultimately demonstrating that while the initiative was aimed at innovation and adaptation, it fell short of achieving its intended impact in the competitive landscape of long-term rentals.
After recognizing the shortcomings of some initiatives, Chesky shifted focus back to Airbnb's core business—short-term rentals—while ensuring that hosts received support through enhanced safety protocols and communication.
Paul Graham makes two predictions about Founder Mode’s evolution in the future
The first prediction:
..once we figure out what it is, we'll find that a number of individual founders were already most of the way there — except that in doing what they did they were regarded by many as eccentric or worse
Elon Musk at Tesla has long been known for his hands-on leadership style, often diving into the details of engineering and production processes.
Founders like Howard Schultz of Starbucks also exemplify this approach by maintaining close ties with their employees and being actively involved in shaping company culture and product offerings.
The second prediction:
as soon as the concept of founder mode becomes established, people will start misusing it. Founders who are unable to delegate even things they should will use founder mode as the excuse. Or managers who aren't founders will decide they should try to act like founders. That may even work, to some extent, but the results will be messy when it doesn't; the modular approach does at least limit the damage a bad CEO can do.
Some founders may use the concept as an excuse for their inability to delegate effectively, leading to micromanagement rather than empowering their teams.
A case in point is Elizabeth Holmes, former CEO of Theranos, who was known for her intense control over the company’s operations.
Her refusal to delegate critical tasks contributed to the company's eventual downfall, as she became overly involved in areas where she lacked expertise.
Additionally, managers who are not founders may try to emulate this hands-on approach without the same level of insight or connection to the company's vision, potentially leading to chaos and inefficiency.
This can be seen in various corporate settings where traditional managers attempt to adopt a founder-like persona without understanding the underlying principles that make such an approach effective.
Source: